Online spending eroding NZ tax base more than multinational avoidance, English says

Wednesday 29th January 2014 3 Comments

The growing worldwide digital economy is putting pressure on New Zealand's tax base, though online retail is a bigger threat than multinational avoidance, according to Finance Minister Bill English.

New Zealand is part of a multilateral effort to clamp down on income shifting by the likes of web-based giants Google and Facebook, who have garnered international attention for their complicated tax structures, English told Parliament's finance and expenditure committee.

A bigger threat to New Zealand's tax base is the increasing use of online retail spending, which avoids the country's 15 percent goods and services tax, he said. What made both issues murky was that traditional jurisdictions were muddied by the questions over geographical and digital boundaries.

"The most urgent issue is not the large end of town, it's the small end of town, it's hard-working mums and dads spending on the internet," English told the committee. "We have to resolve both of those issues."

Retailers have come under pressure from online sales, with apparel in particular struggling to compete, and have called for the tax department to be more stringent in collecting goods and services tax on New Zealanders' purchases from overseas websites.

The government raked in a smaller than expected tax take of $23.88 billion in the five months ended Nov. 30, due to lower corporate and GST tax revenue.

Treasury officials are picking accelerating tax revenue growth as an expanding labour market provides more income tax, and as rising wages encourage households to ramp up spending, fuelling the GST take, according to the half-year economic and fiscal update.

Speaking directly after the minister, Treasury chief economist Girol Karacoaglu told the committee New Zealand's economy was facing strong immediate growth, though that would temper to a more moderate pace in the coming years.

He warned against profligate government spending, which would put upwards pressure on interest rates that are already set to rise and an elevated currency.

"We might be a rock star, but we don't want to be a one-hit wonder," Karacoaglu said.

One of the measures the Treasury put forward to foster the country's tradable sector was in growing international connections across all policy areas, including education, infrastructure, immigration and overseas investment, he said.

"Everything we're looking at attempts to connect the New Zealand economy better with the rest of the world," Karacoaglu said.

BusinessDesk.co.nz

Comments from our readers

On 29 January 2014 at 7:27 pm Ron Walker said:

As an infrequent buyer of online retail I find the idea that this avoids GST and threatens retailers disingenuous. NZ Customs has a great site "http://www.whatsmyduty.org.nz/" where you can see what they collect and I can assure you from personal experience they do collect. It is more like the retail markups in NZ that have people shopping wisely. The other story here is that whoever is peddling this fallacy is either incompetant or deliberately misleading. Perhaps journalists should be calling them out on these things.

On 9 February 2014 at 5:25 am Nelson Procter said:

"English told Parliament's finance and expenditure committee. A bigger threat to New Zealand's tax base is the increasing use of online retail spending, which avoids the country's 15 percent goods and services tax, he said." I would have expected Bill English to know how GST payments on O/seas purchases work. Some years ago, Customs (and IRD?) decided that the cost of collecting GST from low value imports was not economicfor the State. They chose very sensibly to allow items entering NZ which would generate less tax than $50 to come in w/o duty or GST. When GST increased to %15 there was a proportional reduction in what could be bought in "for free" reduced in proportion. These people with agendas would have us believe that the vast majority of items are deliberately brought in because of the lack of GST on small items. What they forget is that each item comes in by post or courier and in most cases shipping by air/courier firms can be VERY expensive. Additionally many items on the technology front are simply NOT AVAILABLE in New Zealand and one pays a premium for their purchase through shipping costs. About 5 years ago I bought in a Revox B77 analogue tape recorder from Canada. Shipping via DHL cost something of the order of $400 on which I paid GST additionally to that on the value of the recorder. There is no retailer in NZ who lost money on a sale in this country. Similarly with car parts. I own a 1998 Rover and Rover company no longer exists. Spares are obtainable in the UK, again at a penalty in shipping costs. Where is the NZ retailer who lost a sale?

On 10 February 2014 at 5:53 pm Don said:

Any minister of finance would say that wouldn't he. I TOO BUY OLDER & CLASSIC CAR PARTS FROM UK, as they are in competition with many more retailers than here. Much lower FOB prices & happy to pay post freight. Franchised retailers too greedy & deserve to miss sales.